With the notable exception of the US, bullish poultry market conditions are turning bearish due to recent grain price hikes caused by turmoil in Ukraine and El Niño-related worries, according to Rabobank’s Poultry Quarterly Q1. Abrupt increases in feed prices (up 10%-15% on earlier expectations), avian influenza (AI) outbreaks in China and a weaker Asian economy are expected to affect margins in Q2.

“The effect on companies hinges on their regional market balance and longer term forward-hedging,” explained Rabobank analyst Nan-Dirk Mulder. “A slowdown in global trade volumes and lower product prices, especially for leg quarters, will affect companies in international trade and lead to shifts in global trade streams. Brazil is likely to be affected the most, while Thailand is likely to benefit due to its recent return in the Japanese raw chicken market.”

Additional major shifts in trade streams are expected this coming quarter, including pending anti-dumping duties on European Union poultry trade in South Africa, a new temporary free trade agreement granting Ukraine access to the EU market via quotas, and the potential return of exports from the United States to Chinese markets. These developments, taking place under weak global trade conditions in a traditionally weak season for chicken meat, could all have a large impact on global poultry trade.

Regional Updates:

United States: In the midst of constrained supplies of other competing animal proteins, due to porcine epidemic diarrhoea virus in pork and a shrinking US beef supply, another very profitable year is forecast for the US chicken industry.

European Union: Rabobank anticipated a further reduction in margins as South Africa (the EU’s biggest export market) considers anti-dumping duties and the EU considers opening its markets to Ukraine in the short term.

China: The Chinese poultry industry suffered big losses after being hit by an outbreak of AI for the second time in less than a year. The disease has negatively impacted demand, as consumers are concerned whether poultry is safe.

Brazil: Despite a good grain harvest outlook, and improving local demand, a challenging export market will be the key wildcard in 2014.

Russia: Russia continued to struggle with oversupply problems. Exports continued to grow but remain small. High competing protein prices and the depreciating rouble should support margins.

Rest of Asia: Indian industry performance is recovering from oversupply, but Japanese market conditions are bullish. The recent opening of Japan for Thai raw chicken continues to affect trade streams.